Treasury rejects the platinum coin

Deminted

In recent months, many in the blogosphere and increasingly in America's liberal mainstream had called on the Administration to exploit an obscure law that allows the Treasury to mint platinum coins in any denomination. Mint a $1 trillion coin, advocates said, deposit it at the Fed, and use the proceeds to pay the government's bills until Republicans in Congress agree to raise the debt ceiling. It certainly sounded rather banana republic, but no more banana republic than a legislature refusing to let the executive pay bills that the legislature had already authorised. Whatever damage America's reputation suffered from using a coin collector's loophole to service the nation's obligations could not exceed the damage from pointless default.

In the past few weeks, lawyers, economists, bloggers and even former mint officials have argued over the legal, practical, political and economic aspects of such an option. On Friday, January 11th, the Senate's Democratic leadership seemed to warm to the idea, asking the Administration to “take any lawful steps” to avoid default “without Congressional approval, if necessary” (via the Washington Post). In the end, though, the only opinions that mattered are those of the Administration and the Fed.

Today, the Treasury Department made its, and the Fed's, opinion clear: it's not going to happen. “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit," said Anthony Coley, a Treasury spokesman.

There are at least three reasons why this option has been rejected. The first is that it's probably not legal for the Federal Reserve to facilitate such a transaction for the purpose of financing the government. The second is that even if it were legal, it would seriously hurt the reputation and credibility of the Fed, fueling accusations it had subordinated monetary policy to fiscal policy. (This is discussed in more detail in a previous post.) The third and most important is that it lets Congress evade its responsibility for dealing with the debt ceiling.

Of course, the Fed and Treasury have stretched the bounds of legal authority in previous emergencies, whether it was use of the Exchange Stabilization Fund in 1994 to support Mexico or the numerous bail-outs and support programmes during the 2007-2009 financial crisis. Those examples do not apply to the debt ceiling; it is a political, not financial constraint and is entirely within the power of Congress to solve. The same logic explained Treasury's resistance to direct lending, either by it or the International Monetary Fund, to a bail-out fund for Europe's embattled sovereign borrowers. Europe had all the necessary financial resources; it merely lacked the political will. Using the Fed's balance-sheet would provide the politicians an excuse not to act without resolving the underlying problem. For the same reason, other out-of-the-box tactics like invoking the 14th amendment to the constitution, which says the validity of the public debt "shall not be questioned", and selling off the nation's gold are off limits. “There are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default," the White House said today in a statement.

So the showdown over the debt limit, which will probably be reached sometime between February 15th and March 1st, will end in one of two ways: with the limit being raised in time, or Treasury being unable to pay some of its bills, though it can prioritise interest payments at first so as to avoid default on the debt. The odds overwhelmingly favour the first. Since the destructive fight over the ceiling in 2011, Republicans' appetite for a showdown has diminished, and they have at least two other points of leverage without the same catastrophic consequences: steep, across-the-board spending cuts (called a sequester), which kick in at the start of March, and expiration several weeks later of the continuing resolution that funds roughly a third of the government. Allowing either of those events to happen would be unpleasant and damaging, but within the range of unpleasant and damaging things that the economy had dealt with before.

The most effective way to attack Congressmen who oppose an increase in the debt ceiling is to ridicule and humiliate them as low-life welchers, who are trying to squirm out of paying bills that they have already received for goods and services already rendered - goods and services that they ordered themselves.

It's time to be brutally honest about these people. They deserve no respect; they ought to be treated with no respect - in public, repeatedly, at high volume.

I think the Treasury should issue a genuine commemerative coin (of low demonomination) to mark the occasional. It could form part of a series - the Fiscal Farces collection - with a retrospective one for Debt Ceiling 2011 and upcoming issues for the sequester, etc. I reckon they'd sell like hot cakes.

With the debt ceiling blackmail, the GOP continues the repellent nonsense that made me despise them under Gingrich. I got fed up with the GOP in '95 precisely because they demonstrated that they are clueless about how to participate in a legislature, and are always resorting to irresponsible threats instead of working to get the votes they need to accomplish what they want to do. If they can't persuade enough Democrats in Congress, if they can't elect enough Republicans to Congress, to get what they want, maybe they ought to look around and notice that the country isn't all that fond of Right-wing Radicals, and would like to see a Center-Right Republican Party again. Dubya's election victories were flukes - the butterfly ballot and 9/11 - and did not reflect the underlying state of politics. That is the reality the GOP faces, and they'd damn well better wake up to it.

The platinum coin has always been a dubiously legal, damaging, frankly ridiculous idea. The reason it had value is because it's more legal, less damaging, and less ridiculous than a default. It can't be assumed that the House GOP will avoid a default if their demands aren't met. No matter what happens between bickering politicians, a default must be avoided at all costs.

"Render unto Caesar the things that are Caesar's, and unto God the things that are God's"

I haven't noticed that anyone pays much attention to what Jesus actually said. I mean, it's all so inconvenient. That's why Paul, the greatest promoter ever, tacked a Pagan God-man onto a Judaism stripped of its hassles, and conquered the Hellenstic world.

As for Madison, once he switched from being Hamilton's partner in ratifying the Constitution to acting as Jefferson's catspaw, he ceased to be worth a damn. Lousy President, too.

Well, given that we can no longer use the $1 trillion platinum coin, the only thing left to avert catastrophic is Dr. Strangeglove's mind shaft plan! -

General Turgidson: Doctor, you mentioned the ratio of ten women to each man. Now, wouldn't that necessitate the abandonment of the so called monogamous sexual relationship, I mean, as far as men were concerned?

Strangelove: Regrettably, yes. But it is, you know, a sacrifice required for the future of the human race.

General Turgidson: Mr. President, we must not allow... a mine shaft gap!

Good - 'the coin' was never anything but silly subterfuge, but there are at least a couple of ways to trump the Reps 'ace' that are at least intellectually honest -

If it comes down to it, just have the Fed Governors meet and instruct the Chairman to surrender to the Treasury a trillion$ of the Treasuries it holds - just forgive that much debt - that much is just an accounting exercise anyway.

Alternatively, Obama could allow a disruptive 'shut-down' to happen then do 'a Fujimori' - declare a coup d'état against his own government and rule by decree for as long as he wants to remain in office. Who needs Congress anyway? (This one is my personal favorite - gets everyone's blood up, not to mention flowing. As Rahm said - "A crisis is a terrible thing to waste.")

"Dubya's election victories were flukes - the butterfly ballot and 9/11 - and did not reflect the underlying state of politics. That is the reality the GOP faces, and they'd damn well better wake up to it."

Hmmm. And here I thought today's GOP mirrored the politics of Jesus, who as we know wrote the US Constitution with James Madison.

The beauty of the platinum coin or the 14th Amendment option is that it would eliminate the the hostage-taking issue once and for all. This article is incorrect in asserting that Republicans have lost their appetite for default- many, including the Senate majority leader, have advocated for it quite recently. The Republicans would rather have the country default now than maybe, possibly, and almost certainly not, default ten years from now. It is utter insanity.

I'm gonna go out on a limb here - you're not a Republican, are you, Bamps?
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It's not like they're forcing the Feds to repudiate debts - it's a delay, that's all; you know, it's one of those 'I'll mail you a check soon as I sort out this snafu - promise' kind of things. Everbody's gonna get paid eventually.
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Besides, ask any 'Madam' - the humiliation thing apppeals to a certain .... (Where's Buttercup when we need her?)

It's not right and it is a clear breach of a legal duty and some in society will suffer from it - don't think anyone disputes that. Still, paying next month what should have been paid this month is different from repudiating the debt and never paying at all. The debt-ceiling thing involves only the former - its the likes of Argentina that do the latter.

I say we very belatedly surrender to the British Crown. Our national would then cease to be valid, as the nation never legally existed. Better yet, the Queen will likely elect to hang all the rebel leaders in Washington--Georgetown, I mean.

We have roughly 5000 tons of gold at Fort Knox. At currently prices it's worth around $250 billion. That's enough to fund the deficit for about three months. The entire US gold stock is enough for five months.